evp 2011 european business travel barometer english

EUROPEAN BUSINESS TRAVEL BAROMETER 21st edition, November 2011

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EUROPEAN BUSINESS TRAVEL BAROMETER 2011

by the Concomitance Group





The 21st American Express Business Travel Barometer opens at the end of an economically uncertain year, with a GDP growth forecast for the Eurozone of the order of 1%. Paradoxically, although the economic climate has never been so uncertain, the growth in business travel market figures shows that this sector is truly resilient, with a growth in travel budgets of 2.9% on the European market. In this context, four major trends can be identified: Changing perception of business travel

The year 2011 saw a new development in the perception among a quarter of the companies surveyed of business travel as an investment. A new phenomenon is that this trend is accompanied by the establishment of ways to measure the return on the investment on business travel among 40% of the companies.

Changing priorities and factors optimising expenditure items

Budgets which constitute the main optimisation issues for companies are still those for air travel (at 77% on average and up to 82% for plus budgets of less than €5 million) and hotel accommodation for more than one out of two of the companies surveyed. MICE (meetings, incentives, conferences and events) have made a strong appearance and are emerging as a new priority (25% on average and up to 44% for companies with budgets exceeding €20 million). In parallel with this, companies are again adopting longer-term strategies to optimise their expenditure by establishing more structural levers such as advance booking, resorting to travel management companies and preferential suppliers and an increasing use of online tools.

Changes in company practices

There is a developing trend towards increasingly integrated value chain management through the increasing use of online tools (7 points higher than in 2010), the emergence of new practices linked to the use of mobile devices and the sustained development of expense management solutions for over one in two of the companies.

However, companies are concentrating henceforward on the entire value chain. Over 50% of companies report that they have established a process to





manage the various stages of business travel. Paradoxically, however, this value chain is still essentially managed manually: only 9% of the companies surveyed have established an entirely integrated and automated value chain management solution.

As a direct result of these developments, organisations are modifying their structures and their decision-making systems around purchasing departments which increasingly act as the main negotiating and decision-making body.

Changing company expectations of their travel management companies

In this context, companies are affirming their need for assistance for all stages of business trips through increasing purchases of value-added services both before and after each journey. This reinforces the role of the travel management company as an indispensable partner for the companies.

2012 Prospects

Companies are showing moderate caution for 2012, with the average growth in business travel budgets at 50% less than in 2011, i.e. +1.5% as opposed to 2.9%.

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MARKET AND TRENDS

Resilience of the European business travel market

Business travel is developing in a difficult international climate. This year has seen diminishing growth in all countries, even in China. The major event of the year, however, has of course been the Eurozone crisis, which has exacerbated fears of the worst-case scenario. Reducing deficits, and hence budgetary discipline, are now priorities for most European countries. Growth in 2012 will hang only on one thread: the driver for this growth will probably be company investments rather than household consumption. Political uncertainty is also expected in 2012, with forthcoming elections in numerous countries such as France and Spain. However, it must be acknowledged that business travel has shown resistance in 2011 due to the effect of sustained demand, although there was a slight slowdown at the beginning of the fourth quarter.

A gradual return to growth in travel budgets

Following two years of marked de-growth in budgets, the relative numbers of growing, unchanged or shrinking budgets is now almost at 2008 levels.





34% of the budgets show growth as compared with 31% in 2010 (i.e. a three-point increase). Importantly, for the second consecutive year, the proportion of reduced budgets has dropped by 20 points, from 40% to 21% for 2011. The average increase in budgets for 2011 is 2.9% (1.4 points higher than that of the Eurozone GDP). The average growth in budgets is primarily driven by large companies (with budgets exceeding €20 million at +4.6%), followed by intermediate companies (with budgets between €5 million and €20 million inclusive at +2.6%) and finally by small and medium-sized companies (with budgets of less than €5 million at +0.7%). The main reasons for this increase in budgets are linked to the following:

development of new markets/clients (64%, 12 points higher than in 2010);

maintaining existing clients and markets (62%: 8 points higher than in 2010);

competition pressure (20%: three points less than in 2010).

Overall, intra-organisational business travel is still a major motive for business travel, representing 1/3 of the expenditure irrespective of the size of the business travel budget. The primary motive for business travel is still to maintain and develop company activities and accounts for a little under 70% of overall expenditure.





With regard to expenditure to maintain and develop company activities, there is a real correlation between the amount expended and the reasons for business trips. Note for example that companies with business travel budgets exceeding €20 million devote 24% to the development of new markets, while companies with budgets of less than €5 million only devote 19% for this purpose. Indeed, the latter prefer to focus on retaining existing markets, which represents 32% of their expenditure. Finally, irrespective of the companies' travel budgets, the relationship between internal and external company business travel remains unchanged.

Perception of business travel as a constantly developing investment

The way companies perceive the role of business travel is changing; those which consider it as an investment have increased in number over the last three years. This year, there is a clearer distinction between companies which consider business travel as an investment (25% or +4 points) or as a cost (65% or +9 points), while there has been a drop of 15 points to 10% among those undecided between these two views. In addition, there are differences in perception between countries, with more companies in Germany, Great Britain or Scandinavia considering business expenditure as an investment. Overall, the idea of business travel as an investment is increasing in all market segments, in particular for budgets of less than €20 million.





Unlike previously, this development in the capacity of companies to better qualify their travel budget is accompanied by their ability to measure the return on their investments in business travel. 39% of the companies reported that they measure this return on the investment. For example, 20% of them measure it by department, 12% measure it for each trip and 8% measure it for each employee. However, 21% do not evaluate it but would be interested in instruments enabling them to do so. This trend towards measuring the return on investment in business travel is not specifically European. In the United States, an increasing number of companies are establishing methodologies specifically for this purpose. Today, companies are able to compare business travel expenditure within one and the same activity sector in order to ascertain their place among the competition.





Beyond the total expenditure, the comparison includes factors involving the following: • contracts with suppliers and the rates at which they are applied • the rate of adoption of online instruments and in general manner the influence of these services on employee productivity and the impact on company results. These practices confirm studies conducted among numerous American and European companies which show that for every new Euro invested in business travel, the return is 8% in Europe against a global rate of 10%. Specifically, it has been established that sale closure rates are twice as high following face-to-face negotiations.

Three types of company emerge according to the role which business travel plays as a company growth factor

This year, the barometer has enabled the identification of three types of company in terms of their business travel behaviour.

The first group (25% of the companies surveyed) consider business travel as a contribution to their growth.





These companies have seen higher than average growth in part of their budget in 2011 at 4.5% (+1.6 points) This group is clearly defined with regard to:

its capacity to measure the return on the investment in business travel. Almost one in two companies in this group (47%) report that they conduct assessments to measure the return on their investment in business travel, i.e. 8 points above average;

the company's experience in terms of travel policy and expense monitoring. This group is the most developed with regard to the scope of their travel policy (10 out of 16 directives have been identified in more than 85% of the travel policies); with regard to monitoring processes and tools (71% have expenditure monitoring systems); and with regard to their establishment of expense management tools (53%); Note that this group tends to organise business travel management globally (with only one decision-making centre for all markets) and decision-making is distributed between the travel and purchasing departments.

This group makes the most use of travel agency services for basic needs such as booking, but also for purchasing value added services.

The second group (65%) considers business travel as a necessary cost. These companies have seen lower than average growth in part of their budget (30%, i.e. less than 4 points) and the same level of de-growth. The average growth in their budget is +1.3%, i.e. 1.6 points below the European average.

This group is characterised by the following:

lower capacity (36% of companies) to measure the return on their business travel investment

less experience in terms of the scope of travel policy (4 out of 16 items identified in over 85% of their travel policies); in terms of monitoring processes and instruments (62% carry out systematic monitoring); and in terms of expense management tools (41%) This group tends to organise business travel management locally or regionally (63%), rather than globally (with only one decision-making centre for all markets). Decision-making is distributed between the travel and purchasing departments.





This group makes the most modest use of travel agency services. Companies in this group pay particular attention to solutions which enable them to reduce their indirect costs (e.g. by integrating the travel policies in their IT systems). Companies in the last group (10%) consider business travel neither as a cost nor as an investment.

With these companies, the contrast is greatest between increasing budgets (41%, i.e. more than 7 points above average) and diminishing budgets (35%, i.e. more than 14 points above average). The average growth in their budget is +1.3%, i.e. 1.6 points below average. This group has the largest proportion of companies with budgets of less than €5 million.

This group is characterised by the following:

limited capacity to measure the return on a business trip investment. 24% of companies in this group report but they conduct evaluations to measure the return on their business trip investments;

highly variable level of company experience in travel policies and expense monitoring. This group is relatively advanced in terms of the scope of company travel policies (7 out of 16 items identified in more than 85% of their travel policies), but lags behind in terms of monitoring processеs and instruments (47%) and expense management tools (35%);





POLICIES AND PRACTICES OF EUROPEAN COMPANIES

Continually monitored budgets, particularly with regard to air travel and hotel accommodation

The expenses which companies must manage most strictly for the time being are in the following order of importance: air travel at 77%, followed by hotel accommodation at 49%, MICE* at 24%, vehicle hire and rail travel at 22% and 19% respectively.

However, the priorities vary greatly according to the size of the budgets. Hence, for budgets exceeding €20 million, expenditure on hotel accommodation and MICE must be managed as a priority; while companies with budgets of less than €5 million in general air travel must still be treated as a priority. Managing and monitoring MICE expenditure is currently a strategic issue, in particular for companies with travel budgets exceeding €20 million, 44% of which consider it as a priority, while the market average is only 24%. This optimisation opportunity concerns all companies, since over 30% of expenditure is related to internal or intra-organisational business travel. (* meetings, incentives, conferences and events)





Changes in the order of importance of business travel optimisation factors

The year 2011 has seen a return to less opportunistic purchasing behaviour, with the establishment of optimisation factors affecting expense management in a structured manner.

Companies assign the following order of importance:

advance booking, which allows savings of the order of 10 to 15%;

using travel management companies, which since 2009 has been one of the main business travel budget optimisation factors;

increasing the use of preferential suppliers;

use of online tools, considered again this year as a strategic factor, while in 2009 it only achieved 8th place.

Note that the factor referred to as "using the best available tariff beyond supplier recommendations" is now in 6th place. In addition, we note the emergence of new practices which companies are establishing to encompass the entire value chain more fully. These affect the pre-trip and post-trip components (business trip approval and expense management tools, respectively in 13th and 14th place).





End-to-end coverage of the entire value chain

Travel policies have expanded rapidly over the last few years, both in terms of their formal application and in terms of the number of matters which they address, progressively covering the entire value chain from approval of the travel request through to integration of invoices in the accounting system.

Overall, over one in two companies has the capacity to manage the various stages of the trip from end to end, taking all segments together:

60% of companies state that they cover travel requests and their approval;

66% cover online booking and payment;

64% cover travel expense requests and the approval of travel expenses;

71% cover the payment and reimbursement of travel expense claims;

60% integrate them into the accounting system. Note that large companies are better integrated in terms of pre-trip aspects (business trip requests and approval and the online component) than other types of company. Intermediate companies and those with budgets of less than €5 million are more uniformly integrated in terms of the post-trip aspects. This is mainly linked to the fact that post-trip tools are more difficult to integrate in large groups due to the large





number of IT interfaces and greater sharing of responsibilities between the various departments.

In parallel with this, travel policies continue to develop (with a coverage rate equal to 80% for 11 out of the 16 directives present in the travel policies) and travel policy compliance is increasing, with the compliance rate increasing by over 70% (4 points higher than in 2010). However, this shift is accompanied by the beginning of a process of rationalising payment tools, in particular for budgets exceeding €20 million, which increasingly tend to use company lodged and corporate cards. Finally, structured expense monitoring and control processes are increasingly established, this year with a 13 point increase in ongoing expense analysis and monitoring.

Globalisation of company organisation and decision making

The fact of taking into account global value chain management clearly affects the organisation of business trips and the decision-making process.





Indeed, we can see today that all companies, irrespective of the size of their travel budget, tend to have one decision-making centre which manages their budget on an international level. This phenomenon is linked to an increasingly major concentration of supply, with the consequence that an increasing proportion of supplier negotiations are conducted on a global level (74% of negotiations are conducted globally, 47% locally and 30% regionally). Value chain management on an increasingly global level also results in a change in the centre of gravity of decision making. Today, purchasing departments have become the major decision-making body for 46% of companies.

Low level of automation in the management process and fragmentary reporting sources

For 79% of companies, value chain management is still manual or semi-manual. Only 9% of the companies surveyed have set up a completely integrated and automated system.

The result is a large number of reporting sources over the entire value chain, with consolidation and reconciliation of expenses as a key issue.





The persistence and, to some extent, the increase in the number of reporting sources should be noted, the primary reporting source being travel management companies in more than 70% of cases, followed by card suppliers and internal systems.

Towards increased value chain integration

Value chain integration is a major issue for companies. The barometer has identified three trends which will have the effect of improving integration across the board: increased use of online tools, the emergence of new practices involving mobile devices and the development of expense management solution facilities. The use of online booking tools has increased by 9 points to 66%.

This reflects the fact that companies wish to monitor their costs and to ensure a higher rate of compliance with their travel policies. From this point of view, making good use of online booking tools is a strong anchor point for structured value chain management. Indeed, this awareness is present in all companies, especially those with budgets between €5 million and €20 million. Over the last two years, the latter have increased by more than 15 points to 78%. Note the predominant proportion of travel management companies in the deployment of online tools and the consequent increase in the use of such companies.





The use of mobile technologies has now become common practice for 68% of the companies surveyed.

This shows that the centre of gravity is shifting more and more towards the traveller. For other companies, this use appears to be developing in the short term. Indeed, while in 2010 28% of companies considered that mobile technologies would undergo major development in the next two years, one year later this view is shared by 45%.

Company expectations are more or less in line with existing practices and with the classic functionality which now extends to mobile devices. Accordingly, for 71% of the companies surveyed, the primary expectation is to have the possibility to register, followed by the ability to manage the security of travellers (65%). The opportunities offered by mobile technologies as a traceability and travel geo-localisation tool should be borne in mind here. The other main expectations focus mainly on the pre-trip component, particularly with regard to the booking process for 58% of companies. The vast majority of companies (91%) state that these technologies are a supplement and not an alternative to current booking practices





Almost one in two companies report that they have an expense management tool.

This reflects the fact that companies wish to acquire solutions giving them an overall view of expenditure, enabling them to pay closer attention to the management, monitoring and reporting of their expenses.

Increasing use is made of travel agencies for value-added services along the entire value chain

Increasing use is now made of travel management companies for solutions which include cost monitoring. Demand for consultancy has thus seen a net increase since 2009 in the three main expenditure items we have identified: air travel programmes (+4 points at 32%), MICE (+4 points at 23%) and hotel accommodation (+6 points at 32%), irrespective of the size of the companies surveyed. Another major development to note is directly in line with the factors shown above: a larger number of companies surveyed (+4 points at 25%) have asked their travel management company for optimisation and deployment solutions for travel expense claims. In a context marked by numerous complex reporting tools and payment methods, travel agencies increasingly play an integrating role.





2012 PROSPECTS

Despite the uncertain economic prospects for 2012, the demand for business travel should continue to grow, but at a slower rate; companies are planning a 1.5% increase in their budgets. For air travel, the forecast for 2012 is as follows: Air travel companies in Europe will tend to meet the reduced demand particularly by readjusting their capacity on certain routes. Price increases are expected to be between 0 and 4% in economy class and between 3 and 7% in business class. Other trends may also increase prices, such as the rise in the price of a barrel of oil, the spread of card fees and the effects of renegotiation between companies and global distribution systems (GDS). To be more precise, price increases on the domestic short-haul market in economy class are of the order of 4% to 9%. Increases in the international long-haul business class market are between 5% and 9% inclusive. Prices on the North American market have increased slightly less than in Europe and are of the order of 2% to 6% for short-haul domestic flights and 3% to 7% for long-haul business class flights.





With regard to hotel accommodation, prices in 2012 will probably continue to rise, but to a lesser extent: between 2% and 5% according to the accommodation category. A short-term rise in prices is to be expected in certain markets, for example in Great Britain due to the hosting of the Olympic Games in summer 2012.

With regard to the rail travel market, The demand for rail travel will probably continue to increase in 2012, giving rise to a price rise similar to that in 2011 (around 5%). New routes have been planned, particularly in France with the launch of the Rhine-Rhône TGV next December, which will significantly reduce journey times. However, the effects of opening the market to competition are still not fully visible. The rise in prices on the vehicle hire market is expected to continue in 2012 by 2% to 4%, but with significant variations between countries.





Caution is the watchword for 2012, with budgets remaining predominantly unchanged

The rate of budget growth in 2012 is expected to be half of this year's growth rate: 1.5% as opposed to 2.9%. 26% of companies report that they intend to increase their budget for next year, but there is a great deal of disparity between budgets of different sizes. Some elements are similar to 2011, with clearer intentions for large budgets to be increased, in particular for those between €5 million and €20 million inclusive.





As for 2011, caution is therefore the watchword for medium-sized companies, 55% of which are counting on unchanged expenditure. It is interesting to note that we have also found disparities between companies which consider business travel as an investment. 35% of these are planning an increase, as opposed to 22% among those which consider that business travel is an unavoidable cost and 29% among those which are undecided. Another finding in connection with last year is that 42% of companies consider that the reason for growth in their budgets will be the development of business outside the European market.

About the barometer

The 2011 barometer was prepared by Concomitance on the basis of a telephone survey conducted from 12 to 30 September 2011 with persons in charge of travel budgets ranging from €400 000 to over €50 million (Finance Directors, Purchasing Directors and Travel Managers) in 260 European companies based in 11 countries: Germany, Great Britain, France, Belgium, Luxembourg, the Netherlands, Spain, Italy, Denmark, Sweden and Norway.





About Concomitance Concomitance is a service company specialised since 2001 in marketing, commercial, sales and client relations research, consultancy and performance development. Concomitance has teams specialised in several activity sectors such as telecommunications, travel and business travel, banking, distribution, etc. Since its establishment, Concomitance has stood out in terms of its capacity to transpose commercial and marketing issues into action plans which are immediately effective and comprehensible to all players. This capacity is a direct result of Concomitance's vocation: the prior business experience of our consultants allows us to formulate recommendations and share them with our clients in line with the experience of their organisation.